Johnson Controls' Tyco Buy To Create Global Behemoth

Johnson Controls' proposed merger with Ireland-based Tyco International is designed to create a global manufacturing giant with combined estimated revenue of $48.6 billion in 2016.

Company officials and analysts say the deal also will advance building heating and air conditioning systems maker Johnson's plans to morph into a global multi-industrial company and provide a tax benefit to the combined entity. Analysts say that could draw scrutiny from regulators.

The merger announcement came less than two weeks after Johnson Controls (JCI) named the automotive-seat heating and cooling technology business it is spinning off "Adient." Johnson announced the spinoff last June and expects to complete it later this year.

After the merger, which is expected to close by October, current shareholders of Johnson will own about 56% of the combined company and receive $3.9 billion cash. Shareholders of fire protection systems maker Tyco (TYC) will own the other 44%.

"With its world-class fire and security businesses, Tyco aligns with and enhances the Johnson Controls buildings platform and further positions all of our businesses for global growth," Johnson Chairman and Chief Executive Alex Molinaroli said in a prepared statement.

Johnson and Tyco businesses will combine under Tyco International, which will be renamed Johnson Controls PLC. It will be listed on the New York Stock Exchange as "JCI." The combined company will maintain Tyco's Irish domicile and global headquarters in Cork, Ireland. Its operational headquarters in North America will be in Johnson's home of Milwaukee, Wis.

Tyco shares ended the day's trading down nearly 12% to 34.15 on the news, while Johnson lost 4% to 34.21.

The combined company will save about $150 million a year in taxes by retaining Tyco's legal domicile in Ireland, the companies said.

"Americans and representatives in Congress who control regulatory bodies don't like to see tax dollars fly abroad. That's what will happen here," Levy told Investors Business Daily.

Johnson updated its guidance, saying it sees fiscal first-quarter earnings per share of 82 cents, ahead of the 80 cents-83 cents it provided earlier. Its revised guidance is in line with Wall Street views.

Tyco's EPS is projected to be 42 cents, up from its earlier outlook for 40 cents and in line with estimates. Johnson will report earnings on Thursday, and Tyco reports on Friday.

Johnson's EPS growth has slowed for two quarters, from 20% to 15% and then 7% last quarter. Consensus is for a weak 4% rise for the current quarter.

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